Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Wednesday, October 13, 2010

If I were economic advisor to the Shadow Chancellor ...

... something which I suspect is unlikely to happen, I would be thinking about how one might make an advantage out of his lack of formal economic education, while at the same time conveying a gut-level understanding to my new man of the basis of Keynesian economics. I think I would reason like this:

1. It is a common criticism levelled at politicians of the modern stripe that they have "never had to make a payroll" - ie, that they have no real understanding of how the economy works, because they have never been in a situation of managing a business through tough times.

2. This is also true of Alan Johnson MP, as it is of the Chanceller, George Osborne[1]. However, unlike George Osborne, Alan Johnson has experienced something that's quite like managing a business which needs to make its payroll in a recession, which is called "being poor".

3. When Alan Johnson found himself married with two children at the age of 18, with an income inadequate to his expenses, he did not put his family on an "austerity" programme. Instead, he got a job in the post office, attracted to it by the possibility of well-paid overtime.

4. In general, as anyone who has actually found their household in a situation of having too much debt knows, it's really not usually all that possible to get yourself out of a hole by reducing your expenditure. In general, when you've got an actually serious debt problem, the interest bill is already larger than your discretionary expenses, and so "economising", while it will slow down the rate at which the problem gets worse, will not make it get better.

5. Households which successfully get out of debt, in general, do it by increasing their household income - either by having a non-working partner take on a job, or by doing overtime, or by changing career to something better paid. That's what Alan Johnson did, when he was on his uppers.

Unlike the rather sickening lectures Margaret Thatcher used to give about housewives and their clever domestic scrimping and saving, this is an analogy between the finances of a single household and those of a country which actually works. When you have a debt/GDP ratio which is too high, this is nearly always because the GDP is too low and needs to be increased, not because the debt has got too high and needs to be decreased. If you have a debt/GDP problem that can't be made better by investment and growth, then it's likely that you have a debt/GDP problem that can't be made better at all - ie, you need to default, a situation which the UK is not even nearly in.

A few months in, I'd start showing my man a few straightforward back of the envelope calculations, and maybe even chucking a few debt dynamics finger exercises into his speeches, because I have a canny idea that the man in number 11 is not necessarily in command of his numbers and might be shown up if put in a position of having to do sums in his head (I am guessing that former postmen who have worked with the Byzantine schedule of overtime rates might be quite good at this, plus I seem to remember that Johnson as Work & Pensions Minister did a pretty good number on David Willetts over "the pension crisis", which was a similar combat of neoliberal platitudes versus arithmetic). But the key priority would be to a) get the central intuition lodged into his backbone, and b) set up a sensible and comprehensible counter-narrative to all this dreadful New Austerian nonsense about "money in the kitty" and so on.

If any Labour politicians read this blog, take it, it's yours.

[1] Yes, he was christened "Gideon". But he decided he didn't like the name "Gideon" and changed his name to "George", twenty five years ago. So16 comments this item posted by the management 10/13/2010 10:51:00 AM